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Starting a
Micro
Business
What is a Micro Business?
So you’re ready to take a side hustle to the next level, but you don’t want to create a full-blown small business yet? Or maybe you’re ready to start a business from scratch but want to keep it really, really small. A micro business is the perfect solution.
Micro businesses are the newest trend among entrepreneurs as they’re super small businesses (think 1-5 people) that require very little capital to start. According to the Small Business Administration (SBA), there are more than 3.8 million microbusinesses in the United States today.
What’s required to start a micro business?
These organizations, also called microenterprises or micro companies, are typically businesses of five people or less and require less than $50,000 to start.
Examples of micro businesses include:
How does a micro business work?
A micro business works similarly to a small business. First, microentrepreneurs (people who own and run a microbusiness) set a business objective and select which business structure may work best for them. Typical business structures for microbusinesses include:
Then, founders have to get the proper business licenses and permits for their state. Some micro businesses may need to secure financing in the form of microloans, which could be up to $50,000 to help get started or expand. According to the Small Business Administration (SBA), the average microloan is around $13,000.
What is the Difference Between a Micro Business and a Small Business?
A micro business typically has about 1-5 employees, while small businesses have ten or fewer. Many micro businesses start as side businesses until the entrepreneur is ready to take it full-time. Micro businesses also require less money to get started and earn less than $250,000 per year, while small businesses can earn millions. Micro businesses can be run by micropreneurs (those who manage and lead a small team) or solopreneurs (those who work alone). Taxes for microbusinesses can vary depending on the type of entity under which the microbusiness is incorporated.
- Sole Proprietorship
Micro business owners who don’t want to form a legal entity, like an LLC, can be sole proprietors. Why not keep operations simple, right? Sole proprietors pay tax on business income when they pay their personal taxes. However, suppose a sole proprietor doesn’t have a separate business account. In that case, juggling business and personal taxes can be tricky, and they might miss out on certain tax deductions if not fully aware. What’s the catch? Doing business as a sole proprietorship leaves owners unprotected in a way that forming a legal entity doesn’t. Entities, like LLCs or S Corps, give owners more protection for personal assets so they aren’t jeopardized during financial hardship or litigation.
- Limited Liability Company or LLC
LLC taxes are typically very simple and flexible for micro business owners. There’s a reason why more than 80 percent of small business owners choose an LLC when forming their business. LLCs are “pass-through” entities, meaning profits are “passed through” as income to owners or members, and business owners get to report LLC income on their personal tax returns. As far as asset protection, LLCs offer a hybrid structure that allows owners more control over their business and extra protection for personal assets in case of financial or legal issues because company assets are owned by the LLC and are separate from the owner’s personal assets.
- S Corporation
Filing as an S Corporation could save micro business owners money. Meaning, like an LLC or sole proprietorship, profits pass through to shareholders, and income is taxed on the shareholders’ personal tax returns. This means the corporation’s profits are only taxed once, and shareholders avoid double taxation. S Corps also offer owners certain legal protections for personal assets, which are separate from the business’s assets. Shareholders aren’t personally liable for the company’s debts or liabilities, and creditors can’t go after the shareholders’ personal assets to recover business debts.
- C Corporation
If a micro business is a C Corporation, the company pays C Corp tax rates on qualifying corporate profits. Then, post-tax income can be distributed to corporation shareholders as dividends. Shareholders are taxed on dividends, so owners pay taxes on the same earnings twice—once at the corporate level and then at an individual level. This is called “double taxation.” Since a C Corp is a separate legal entity, the business’s liabilities are separate from the liabilities of the directors, investors, and shareholders.
The Advantages of Starting a
MicroBusiness
Freedom
Being a micro entrepreneur means you control your own schedule. Get a sudden burst of inspiration at midnight for that new design project? Want to take the day off to catch up on household tasks? The only person you report to is yourself.
Unique business
Micro business decisions are left up to the owner and sometimes a small number of employees, meaning you create the unique business of your dreams or serve niche markets that larger organizations can’t.
Low Start-up Costs
Micro businesses are, well, micro. This means that they require little money to get started, and there aren’t hefty expenses for employees, operations, and office space.
Simplicity
With fewer people to manage, running a micro business offers simplicity that small or large companies don’t. Of course, there will still be challenges, but overall operations will be much easier with a micro business.
The Disadvantages of Starting
aMicro Business
No Brand Recognition
At first, it may be challenging to attract customers because your business doesn’t have the same brand recognition and credibility as bigger names in the industry.
Self-funding
If you’re planning on funding the microbusiness yourself, saving start-up costs can be difficult and take a long time.
Pricing Limitations
Micro businesses may not be able to set prices that beat larger businesses and may be less equipped to handle seasonal dips in sales or periods of high demand.
Limited Resources
Bringing on new employees or buying new technology can be a challenge for microenterprises because you may not have as many resources as larger businesses out there.
How to Start a Micro Business
Here are the 9 easy steps to starting a micro business:
How to Get
Financing
for Your
Micro
Business
State funding options for micro businesses
Several states have initiatives and/or grants to help entrepreneurs find the right micro business financing. Look into your state’s programs to determine which would be best for your business.
Support for micro businesses
Sometimes micro businesses need support that isn’t in the form of financing. There are resources out there that can help you write a business plan, file for incorporation (Bizee can do this for you for free!), do accounting, or get continuing education. Some states have their own support networks for small businesses. For example, the Texas Governor's Office of Small Business Assistance and the Business Permit Office can help small and medium businesses in the state through advocacy, entrepreneurial support, education, and technical assistance. To find support in your area, research your state’s small business assistance programs or use this SBA tool that allows entrepreneurs to search for local free or low-cost resources and in their zip code.
Ready to Start Your Micro Business?
You have a lot of options when it comes to launching your micro business. Keeping costs low that first year can help you get your business off the ground much faster. If you’re ready to form an LLC, Bizee can help. We'll incorporate your LLC in your state for $0, plus you’ll get a free registered agent for an entire year.
Frequently Asked Questions
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Conclusion
With the right attitude, skills and approach, you can build a very successful home handyman business. Identify your areas of expertise, market yourself well and put together a business plan. This will help you build good word-of-mouth and grow your client base. Whatever type of tradesman you end up being, we wish you the very best of luck!
